Jerry Lockspeiser on why consumers are right to buy cheaper wines
A decade ago I was at a business review meeting with Mark Murphy, Tesco’s then head of beers wines and spirits, discussing how to persuade consumers to ‘trade up’, or as they would put it, buy higher priced wines.
My company supplied a lot of wine to Tesco, much of it inexpensive and most of it custom made by our winemakers to suit popular tastes. Mark listened to my new brand proposal then made a telling point. He complemented me on the great job we were doing producing very drinkable wines at affordable prices then pointed out that this was precisely why his customers felt they had no reason to pay more. They were already happy.
Plus ça change. Consumer comments in response to Harpers recent research titled “Demystifying the Consumer” show that most (of course not all) continue to feel it is entirely rational to buy towards the bottom end of the market. A few selected quotes show why:
“The only thing I do know is that the more money you spend on wine the more disappointed you will be, so stick with what you have tried and liked”.
“Wine is hit and miss…..Price is rarely a factor”.
“I occasionally try a more expensive recommended wine but I can’t tell the difference and go back to buying the cheap stuff”.
“I was on a wine course at college…and it was the wines (that)…cost around £20 that were liked least. But what’s wrong with liking wine with bags of fruit and little tannin? To hell with wine snobbery.”
“I won’t pay more than £6 for a bottle of wine. At Aldi, I can get a wide choice of excellent wines that I can, and do, enjoy….”
They walk the talk these consumers. We get through 1.5 billion bottles of wine a year and only 46% of off-trade sales are over £5 a bottle. Over half (54%) of Harpers respondents said they will not pay more than £6, and 93% won’t pay over £10. According to Nielsen only 6% of all bottles sold are over £8 and only 1.8% over £10.
Should consumer pay more for wine?
With consumers so content at lower price points why is much of the trade exercised with getting them to spend more?
Two reasons seem to stand out.
The first is pecuniary. We think we will make more money. But we should be wary: we don’t know which of the triumvirate of retailers, distributors and producers will reap the extra margin. Nor should we forget that the bedfellow of higher price is lower volume, so while margin per bottle may rise, the total annual cash pile could drop.
The second is missionary. Like Jehovah’s witnesses we pity the poor souls who have not seen the light. We know, because we are chosen, that people will have better, richer, more fulfilled lives if they learn to like wines that cost more.
The first reason is a lot more honest and defendable than the second. Why shouldn’t we shift consumers’ money out of their pockets into ours – so long as we give them a good reason? As for our higher consciousness, blind faith is a poor substitute for facts, Bacchanalian or otherwise.
A key plank in the trading up argument is that at low prices the wine is such a small a fraction of the total cost it can’t be much good. Ergo if you pay more, say £8-10, you are getting a significantly better quality drink in both absolute and relative terms because the wine itself is a bigger percentage of the retail price.
Judging by the market most consumers seem to disagree. They are right to do so. Higher price doesn’t equal better wine because:
There is no correlation between what most people like and the price of the wine. At best it’s random, at worst people tend to like more expensive wines less, probably because they are often less approachable and harder to drink. Many consumer tasting studies show this.
Land, labour and finance costs vary between countries and between regions within a country. Producers have differing business efficiencies and profit margins. All of these affect the cost at the winery gate without any necessary connection to wine quality.
The consumer has no way of telling how much of the retail price goes to the producer and how much is all the other supply chain costs- shipping, storage, distributor margin, retailer margin and taxes.
A wine costing €2 ex cellar retails at a much higher price in an independent at the end of a long supply chain than in a supermarket which has shipped direct from the winery. Similar differences are hidden within market sectors. A £5 bottle from Aldi has as much wine cost in at as higher priced wines sold by many of its rivals. If the share of the retail price that goes to the producer was decisive in this case the cheaper wine would be the better.
Frequently and heavily promoted wines derail the argument that higher price equals better. Consumers buying them at the full price either feel they are getting a real bargain at the promotional price or were being ripped off before. Either way, unless the price is mostly stable it’s impossible for them to correlate price with quality.
Of course for many spending more on a bottle of wine is not an option. Another respondent to the Harper’s research hits the spot: “More than half of Brits can’t pay more than £6 for a bottle of wine. Not and eat as well.”
Minimum pricing fans please note.
But for those who can, it is self-evidently true that people can be trained into liking - really liking- omething they previously disliked, or were unaware of. People can learn to appreciate and become deeply interested in new types of music, art, food or wine. Not everybody for everything, but some. However, all the evidence suggests only a small percentage of the nearly 30 million wine drinkers in the UK currently have the interest and opportunity to go down this route.
Prices are moving up, of course, largely fuelled by annual duty increases. All boats rise with the tide and £5 is the new £3. Consumers continuing to buy the wine they like as it creeps up in price each year may have increased the percentage sold at higher prices. There has been an increase in the number of bottles sold over £10, from 1.2% in 2012 to 1.8% in 2014. But it would be a brave man who sees this as a sea change in the market.
According to the Harpers research almost half of consumers plan to spend less on wine this year and to drink less of it. That doesn’t say much for our ability to move wine from a functional beverage into an aspirational ‘go to’ leisure experience.
Finding a wine style they enjoy is base camp for every consumer. Our role is not to tell them their choice is wrong, but to add another dimension to the wine. In a world of many similar tastes, involving people in stories, values or emotions adds greater meaning and provides differentiation between products.
When English winemaker Katie Jones had some tanks of her winery in the south of France emptied by vandals Naked Wines customers ordered 30,000 bottles in 48 hours to help her recover. The point is not the disaster but the engagement of wine drinkers beyond the taste alone. They responded to the story.
If people feel a good reason to spend more they will. Ask the guys who started Innocent. Otherwise why wouldn’t they spend as little as possible?